The Future of India’s Defense Exports

India’s BrahMos supersonic cruise missiles, mounted on a truck, pass by during a full dress rehearsal for the Republic Day parade in New Delhi, India.

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Long among the world’s top importers of weapons, India now wants to turn its military related trade into a two-way affair by enhancing defense exports from its soil. This new emphasis on exporting military wares has yielded early results with Indian defense exports doubling over the course of the past year to about $330 million. India’s defense minister Manohar Parrikar, however, has set his sights higher and wants annual military exports to touch $2 billion in a couple of years. While the initial growth in sales has been driven by exports of military stores due to the removal of excessive controls, reaching Parrikar’s target would require Indian diplomacy to re-orient itself toward securing weapons contracts for major indigenously-developed systems under the aegis of the government’s “Strategy for Defense Exports” (SDE). SDE, which is overseen by the Department of Defense Production (DDP) in India’s Ministry of Defense (MoD) is intended to boost Prime Minister Narendra Modi’s “Make in India” scheme while consolidating Indian influence abroad.

In the initial phase, India’s defense sales effort is likely to concentrate on homegrown missile and naval systems, which have high indigenous content in terms of components. Of course, India will also progressively leverage the various international collaborations it has built up through years of co-production and co-development as it joins global export control regimes such as the Missile Technology Control Regime (MTCR). While India will try to export certain classes of tactical systems as widely as possible, weapons with greater strategic import will obviously be offered to select partners. Overall, India is likely to focus on a few key defense partners with which it has maximum strategic congruence for building up its position in the global defense market.

In keeping with that objective, Parrikar was accompanied by a large industry delegation comprising representatives from India’s main arms manufacturers during his visit to Vietnam in June. Military industrial ties were believed to be high on the agenda during Parrikar’s interaction with his Vietnamese counterpart, General Ngo Xuan Lich. On the sidelines of the visit, Parrikar stated that “India’s help in modernizing the Vietnamese military will not just strengthen the diplomatic and military bond between both the nations but also open the doors of strategic exports.”

Indeed, not only is India set to take a final decision on how it might transfer the BrahMos to Vietnam, it has begun discussions with Hanoi to sell the Defense Research and Development Organization (DRDO) developed Varunastra 533 millimeter heavyweight torpedo that was recently inducted into the Indian Navy (IN). Currently capable of being fired from a domestically developed ship based launcher, Varunastra is also being adapted for deployment from torpedo tubes sported by India’s submarine fleet, including the Russian-origin Kilo class units. So besides potentially equipping Vietnamese surface vessels, the Varunastra may also someday find its way onto Vietnam’s own Kilo class boats, especially given India’s involvement in training Vietnamese submariners.

As per India’s training and military cooperation agreements with Vietnam, it must also assist the latter in maintaining and upgrading equipment of Russian origin that is common to the militaries of both countries. Accordingly, Indian industry is looking to partner with Vietnamese firms to augment military platforms with weapons and sensors that Vietnam may not be able to affordably source from elsewhere. For example, India is reportedly set to upgrade two Soviet-era Petya-class frigates of the Vietnamese Navy with new sonar and torpedo launchers, a new fire control system, and a new antisubmarine rocket launcher system. Incidentally, Petya class boats can easily be equipped with 21 inch/533 mm torpedo launchers. And there is a strong possibility that initial Varunastra sales to Vietnam may form a part of this upgrade package. Other systems of Soviet origin in the Vietnamese military that have been identified for upgrades in collaboration with India include T-54/55 main battle tanks and BMP family infantry fighting vehicles, all which will receive new thermal sights and fire control systems. New Indian software defined radios are also likely to be purchased by Vietnam to upgrade both infantry and armored units.

Domestic modernization programs of both Russian as well as Western origin systems have given Indian industry a lot of experience in the arena of integrating equipment from diverse sources with different industry standards. This in turn has allowed Indian industry to emerge as a supplier of sensor and navigation upgrade packages for platforms of diverse origin besides being able to offer standard spares and maintenance services for the same. These capabilities are now getting reflected in the growth in exports that has taken place of late. For instance, last year India exported select avionics for Malaysia’s Su-30 MKM fighters, which are similar to India’s own Su-30 MKIs, and the two countries agreed to set up a “Su-30 forum” last November for exchanging information on training, maintenance, and technical support. With India beginning to train Vietnamese pilots for their own Su-30 MKV2s, one can expect similar exports to Vietnam too in the future.

Indian exports in the recent past have included light helicopters to Afghanistan, Nepal, and Namibia, DRDO developed HMS-X2 sonars to Myanmar (the same sonar likely to feature in Vietnam’s Petya class upgrade), and protective armor to NATO members like Turkey. A range of spares, mechanical components, and electronic assemblies are also being supplied to global majors as a result of offset agreements. A significant driver of this growth has been the simplification and streamlining of the DDP’s standard operating procedure for the issuance of no objection certificates (NOC) related to exports of military stores by domestic companies.

One other particularly noteworthy export has been that of the 1,300-ton offshore patrol vessel (OPV) MCGS Barracuda to Mauritius in December 2014. Built by DDP-controlled Garden Reach Shipbuilders & Engineers (GRSE) for $50.8 million, the Barracuda is India’s first ever export of a home built warship. Besides the Barracuda, India’s government owned Goa Shipyard Limited is currently building two OPVs for the Sri Lankan Navy, as well as eleven fast attack craft (FAC) and two fast patrol vessels for Mauritius. India has supplied Sri Lanka and other Indian Ocean Region (IOR) countries with refurbished boats in the past, but is now looking to export new OPVs, interceptor craft, corvettes, and frigates to littoral states in the region. As per an Indian naval official, most countries in the IOR littoral seek “sub-20 meter boats for harbor patrol, 50-60 meter boats for their territorial waters, and 80-110 meter boats for their EEZ surveillance.”

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East African countries such as Mozambique have certainly been looking toward India to help build their coastal fleets for a while and India may now finally be in a position to deliver. This is underlined by the fact that Indian defense shipyards have enhanced their capacity and productivity via recent modernization efforts and are now in a position to compete for foreign orders. GRSE has actually emerged as the lowest bidder for a two-frigate tender floated by the Philippines Navy (PN). However, even as defense shipyards have augmented themselves, some very modern private shipyards like Indian defense major L&T’s Kattupalli facility, which have been designed to build warships, are underutilized at the moment. As such, L&T is set to supply 10 fast interceptor craft of a type that it is already producing for the Indian Coast Guard to Vietnam for a contract worth about $90 million. This is being facilitated by the $100 million credit line extended to Vietnam by India for the purchase of critical defense equipment. During his visit to Vietnam, Parrikar reportedly assured the Indian private sector of the full support his ministry, DRDO, and public sector defense units to “realize the national aspiration of exports of defense items to friendly nations at competitive price.”

Spare capacity is certainly going to be a key consideration in arriving at a decision to actually export any indigenously-developed system. As Parrikar himself recently stated, “The government had taken a very conscious decision about 4-5 months ago that 10 percent of the missile capacity will be permitted to be exported if producers manage to get export orders subject to parameters set by the Union Government and External Affairs Ministry.” In that light, the Indian government’s desire to push for sales of the Akash surface-to-air missile (SAM) system hold credibility, since annual production numbers for the missile is now in the high hundreds due to sizable orders from both the Indian Air Force (IAF) and Army. Potential customers for the Akash would include Vietnam, other ASEAN states, and a few customers in Africa. A smaller group from the same set of countries would also be offered the Pragati surface-to-surface missile with a range of 150 kilometers, the export version of the Prahaar, which resumed testing recently. The Pragati/Prahaar shares a common airframe and some avionics with India’s endo-atmospheric ballistic missile interceptor, Advanced Air Defense (AAD), creating possibilities for driving down costs through greater economies of scale. Another missile that is at the cusp of production and has been earmarked for export sales is the Astra beyond visual range air-to-air missile, which is compatible with the Su-27/30 family.

SDE notes that “the objective of (India’s) Defense Production Policy will not be achievable without having a well thought out export strategy, so that the industry is assured of access to export markets in addition to domestic market for investing in the sector.” However, in the initial years it will actually be capacity that will drive exports and not the other way around. Be that as it may, India seems cognizant that the successful export of military systems is contingent upon factors other than cost or project delivery. While it has chosen not to create a separate defense policy, it has moved to institutionalize the SDE under the rubric of the Ministry of Commerce’s (MoC) overall foreign trade policy thereby underlining the geoeconomic motivations behind India’s defense export drive.

A Defense Exports Steering Committee (DESC) headed by the secretary of DDP has been set up, with representatives from the Military, MoC, MEA, and occasionally even industry and academia for deliberating and taking decisions on the export of indigenously-developed “sensitive defense equipment” and to suggest specific steps that can boost exports. SDE calls for the use of “specific incentives and promotion schemes” to promote defense exports wherever possible. The need to provide soft financing for Indian defense exports to weaker countries has been clearly noted and MoC’s “Buyer’s Credit” facility is also expected to be leveraged. This assumes significance in light of the fact that Indian private companies face stiff competition from their Chinese counterparts in many emerging markets on account of the higher cost of capital in India.

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Now even as India brings various stakeholders together in committee mode, the need to develop proficiency on defense industrial issues in India’s Ministry of External Affairs (MEA) cannot be understated. SDE expects Indian embassies abroad to understand the requirements of their host countries and it is the MEA that actually controls the extension of line of credit to other countries. It also decides a “negative list” of countries to which most defense exports will be prohibited. Unfortunately, at the moment, the MEA is rather understaffed and needs to pay more attention to countries that are most likely to be markets for Indian defense exports. The MEA will also need to build a cadre of specialists focused on defense matters, something that is lacking at the moment.

India’s military, meanwhile, will have to up the ante on its own diplomatic initiatives. The Indian Navy (IN) has taken a lead in this arena and has been instrumental in securing warship exports in the IOR through the understanding it has built up with the countries in the region. Moreover, IN’s focus on indigenization has been central to creating the capacity for export as is evidenced above. Indeed, while Sri Lanka and Egypt may want to import the HAL Tejas, it remains to be seen whether that can happen anytime soon given current production capacity, which is based on modest IAF orders. In any case, weapons used by a domestic military usually find favor more easily abroad.

An early test for India’s diplomatic ability to secure military orders has, however, already presented itself. Though GRSE emerged as the lowest bidder and scored high on technical criteria during standard post-qualifications inspections by officials from Manila, its bid for the frigate supply tender valued at $437 million nevertheless stands disqualified at the moment on financial grounds. GRSE apparently does not fulfill the net financial contracting capacity criteria used by the Philippines Government to assess the financial capacity of a contractor to make good on delivery. This is due to the fact that Philippines will not make tranche payments for these frigates and GRSE’s current turnover is deemed as insufficient.

However, it must be said that GRSE currently has several ships on order from the Indian Navy including large stealth frigates and in any case has an implicit sovereign guarantee given that it is a defense shipyard. This point will need to be adequately conveyed through diplomatic channels and IN will have to do its bit to persuade its PN counterparts as well.

While incentives may be used to push Indian defense exports in several categories, there are certain weapons which are widely sought after chiefly on capability grounds by foreign nations. The BrahMos is of course a stand out example, with apparently 15 countries including Vietnam, Indonesia, UAE, Chile, Malaysia, the Philippines, South Africa, Algeria, Greece, Thailand, Egypt, Singapore, Venezuela, Brazil, and even Bulgaria reportedly expressing interest. However, systems such as the BrahMos, though MTCR compliant, will be sold on the basis of a balance of interests. Vietnam, with its key position in the South China Sea theater and its closeness to Russia, the United States, and Japan is an obvious choice, especially since some in India see it as “our Pakistan.” There have been reports that the UAE is also very keen for the BrahMos and that a decision is expected soon, but one should remain skeptical about this given India’s ambitions in Iran. India will likely be even more judicious about the air-launched BrahMos once that enters production since all ASEAN Su-27/30 operators may be eyeing it. But then, that is a story for another day.

Saurav Jha is a commentator on energy and security affairs. Follow him on Twitter @SJha1618.